2023 (8) TMI 954 - AT - Income Tax

Validity of Revision u/s 263 - TDS on payment made to Power Grid Corporation of India Ltd (PGCIL) - excess claim of regulatory asset - non recognition of income arising out of subsidy - HELD THAT - The absence of any enquiry made by the Pr. CIT in respect of the replies filed by the assessee clearly shows the non-application of mind by the Pr. CIT. Even if one is to consider the facts of the addition, the Co-ordinate Bench of this Tribunal in assessee s own case has already held that the assessee is not liable to deduct TDS on the wheeling charges paid to PGCIL. This has been directed in assessee' case for the assessment year 2009-10. The revenue has been conscious in not appealing against the said order. However in order dated 28.3.2011, the Pr. CIT has ignored the reply on this issue in the order u/s. 263. In regard to the issue of regulatory asset, it was very much before the Pr. CIT and in the replies filed by the assessee that OERC has directed to recover the specified amounts in six years and that amounts have been recovered and offered to tax and in short it is excess income that has been offered to tax and same could not have been treated as erroneous and prejudicial to the interest of the revenue under any circumstances. The order of OERC is also dated 18.3.2011 and this order was available before the Pr. CIT before passing order u/s. 263. In regard to deferred tax liability also, the assessee has collected the amounts on the basis of the order of OERC. This was also before the Pr. CIT. Even on cursor perusal of the reply filed by the assessee would show that the assessee has offered the incomes in the line with the order passed by the Regulatory Authority. In regard to the issue of subsidy also, the assessee has categorically mentioned that it has been following AS-12 and that net of the subsidy has been offered to tax. Thus, clearly this is a case of no enquiry by the Pr. CIT. A perusal of the order of Orissa State Police Housing Welfare Corporation Ltd., 2022 (4) TMI 1395 - ORISSA HIGH COURT shows thatas categorically held that the purpose of such an enquiry would be to arrive at a subjective view. Even if such enquiry is not mandatory, there has to be some basis on which the CIT can form such a view. The basis for forming a view that the assessment order is passed is erroneous and prejudicial to the interest of the revenue is admittedly not coming out of the order of the Pr. CIT. The order of the Pr. CIT is admittedly non speaking one in respect of replies filed by the assessee before him. Even if we are to consider the decision of Malbar Industrial Co Ltd 2000 (2) TMI 10 - SUPREME COURT the said order used the words the Commissioner has to be satisfied with twin conditions . This satisfaction must be discernible from the order of the Pr. CIT. The order of the Pr. CIT should a speaking one for the reasons to be discernible. Here, it is noticed that it is not so. The order passed u/s. 263 is unsustainable and consequently, same stands quashed.

Issues Involved:
1. Condonation of Delay in Filing Appeals
2. Validity of Proceedings under Section 263 for Assessment Year 2013-14
3. Validity of Proceedings under Section 263 for Assessment Year 2014-15
4. Non-Consideration of Assessee's Replies by Pr. CIT
5. Necessity and Scope of Enquiry by Pr. CIT under Section 263

Summary:

1. Condonation of Delay in Filing Appeals:
The appeals filed by the assessee were barred by a delay of 269 days. The delay was attributed to the clerk's negligence in the Chartered Accountant's office. The Tribunal, after hearing both sides, found the delay reasonable and condoned it, admitting the appeals for hearing on merits.

2. Validity of Proceedings under Section 263 for Assessment Year 2013-14:
For the assessment year 2013-14, the Pr. CIT initiated proceedings under Section 263 concerning issues like TDS not deducted on payments to Power Grid Corporation of India Ltd (PGCIL), deferred tax liability, wheeling charges, excess claim of regulatory asset, and non-recognition of income from subsidy. The Tribunal found that the Pr. CIT had not considered the assessee's replies nor provided findings on how the original assessment orders were erroneous and prejudicial to the revenue. The Tribunal concluded that the Pr. CIT's order was passed without application of mind and in a mechanical manner, thus quashing the order under Section 263.

3. Validity of Proceedings under Section 263 for Assessment Year 2014-15:
For the assessment year 2014-15, the Pr. CIT invoked Section 263 on issues like excess claim in the regulatory asset, non-recognition of income from subsidy, and computation of income under Section 115 JB (MAT). Similar to the previous year, the Tribunal found that the Pr. CIT did not consider the assessee's replies or conduct any verification. The Tribunal held that the order under Section 263 was unsustainable due to the lack of enquiry and application of mind, thus quashing the order.

4. Non-Consideration of Assessee's Replies by Pr. CIT:
The Tribunal noted that the Pr. CIT had extracted the issues and the assessee's replies in his order but did not discuss or reject the replies. The Tribunal emphasized that the Pr. CIT was required to consider the replies and give a finding, which was not done, indicating non-application of mind.

5. Necessity and Scope of Enquiry by Pr. CIT under Section 263:
The Tribunal referred to various judicial precedents to highlight that the Pr. CIT must make or cause to make necessary enquiries before passing an order under Section 263. The Tribunal found that the Pr. CIT did not conduct any enquiry or verification after receiving the assessee's replies, making the order under Section 263 invalid.

Conclusion:
The Tribunal quashed the orders passed under Section 263 for both assessment years 2013-14 and 2014-15 due to the lack of enquiry and non-application of mind by the Pr. CIT. Consequently, the related appeals by the assessee and revenue became infructuous and were dismissed.

Order dictated and pronounced in the open court on 29/03/2023.

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